MXN: Strategic negative bias - Nomura
Analysts at Nomura maintain their strategic negative bias in MXN and suggests that over the coming days, MXN and local rates in Mexico will remain driven by the ongoing NAFTA negotiations (15-21 November).
“Somewhat less combative messages from policymakers and a softer USD backdrop have introduced opportunities to add short USD and receiver positions in local rates. Nevertheless, from a strategic point of view we remain sceptical of these shortterm trends and therefore keep our bearish bias on the currency.”
“On the rates side, we believe the next important trade in Mexico will be to receive the 2yr sector of the TIIE curve due to: 1) the coming easing cycle in 2018 and 2) a likely reduction in risk premium post-NAFTA negotiations. Nonetheless, any trade aiming to capture the coming easing cycle will have to meet two conditions: 1) demonstrate a degree of resilience to a further wave of risk premium accumulation on negative NAFTA headlines and 2) minimise negative carry. We believe that steepeners on the curve could be an efficient way to meet these requirements. In addition, steepeners could also benefit from any potential selling pressure driven by a shifting external backdrop in 2018 from potential Fed and/or ECB monetary policy normalisation.”